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Oversupply and higher interest rates herald tough times for home builders



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BIS Shrapnel Global marketing intelligence and forecasting

NEWS RELEASE For immediate release, February 27, 1995

Contact: Robert Mellor BIS Shrapnel (02) 959-5924

Stuart Gardiner AAG Public Relations (02) 959-3509

OVERSUPPLY AND HIGHER INTEREST RATES HERALD TOUGH TIMES FOR HOME BUILDERS

Stock surpluses and rising interest rates will dampen the housing construction sector at least until the end of 1996, says BIS Shrapnel.

Commencements are expected to fall by 7 per cent to 165,000 in 1994/95.

However, the Director of Building Services, Robert Mellor, writes in the latest issue of Building Industry Prospects that the Sydney and Melbourne markets could experience shortages and rising prices when interest rates move into a downward phase in

1997 .

Mr Mellor says the record 189,300 dwelling approvals in the year to September 30, 1994, was the peak of the current cycle.

The downturn is being driven by a rapidly developing oversupply and higher interest rates.

Oversupply in Brisbane and Perth have caused vacancy rates to rise to around 5 per cent compared with less than 3 per cent in Sydney and Melbourne.

The two most buoyant markets - NSW and Victoria - are still not oversupplied, but residential building activity is still expected to decline over the next few months.

BIS Shrapnel Pty Limited 7th Floor Norplaza, 169 Miller Street. North Sydney NSW 2060 Australia Telephone: (02) 959 5924 Fax: 959 5795

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State-by-state summary

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New South Wales has been the most buoyant state with strong increases in dwelling approvals over the last three guarters. Commencements are expected to remain quite sound at 48,000-plus for 1994/95, but to decline sharply in 1995/96 because of higher

interest rates and reduced home unit construction - the result of a potential oversupply of inner-Sydney high rise apartments.

Victoria recorded its fourth successive increase in housing approvals in the December quarter, but the 32,800 approvals for the calendar year 1994 was well below the 41,000 peak in 1988/89. The major reason for the reduced level of construction has been a net loss of 30,000 people annually from Victoria over the past two years.

Queensland: A 13 per cent decline in the December quarter was expected, given that dwelling building activity has been running at 40 per cent above underlying demand. Sharper declines are forecast for the remainder of 1994/95.

South Australia: Total dwelling approvals have declined in each of the past four quarters, and are forecast to decline by 10 per cent in 1994/95 to 10,300 - a level which is still above the underlying demand.

Western Australia: Total dwelling approvals declined by 13 per cent in the December quarter following three quarters of strong growth, but the market is still facing modest oversupply. Commencements are expected to decline by 10 per cent to 22,200 in

1994/95, a figure that is well above underlying demand.

Tasmania: Total dwelling approvals have declined sharply for the past three quarters. Commencements are expected to reach some 3300 for 1994/95, a decline of 20 per cent over 1993/94.

Northern Territory: Commencements are expected to fall by 9 per cent to 1500 in 1994/95. "

Australian Capital Territory: Commencements have declined sharply and are expected to reach only 2700 in 1994/95, a decline of 35 per cent.

ENDS